When the Kenya Revenue Authority (KRA) released the Draft Income Tax (Advance Pricing Agreement (APA) Regulations, 2025, and the Draft Income Tax (Minimum Top-Up Tax) Regulations, 2025, it signaled a welcome step towards modernising Kenya’s international tax framework.
Together, these two instruments seek to align Kenya with the evolving Organisation for Economic Co-operation and Development (OECD) standards, offering clarity on related-party pricing through the APA regime, and implementing the global 15 percent minimum effective tax rate under the GloBE (Global Anti-Base Erosion) model.
For policymakers, the ambition is commendable. But for taxpayers, the details reveal a familiar tension between compliance idealism and operational realism.
Under the draft APA Regulations, a multinational must submit a pre-filing request at least 12 months before the first covered year. At first glance, this seems procedural. In reality, it could make APAs, designed to provide certainty, inaccessible to most Kenyan-based subsidiaries of multinational groups.
Consider a company seeking an APA effective from 2026. It must begin the pre-filing process by December 2024, pay a Sh5 million application fee, and wait up to a year before coverage starts.
That timeline assumes perfect foresight in an economy where business models evolve every quarter.
Globally, South Africa, India, and the UK allow six-month pre-filing windows, balancing administrative prudence with practical timelines. By contrast, Kenya’s 12-month rule, combined with steep application fees, risks confining APAs to the largest taxpayers, leaving mid-sized compliant businesses out in the cold.
If Kenya wants to promote predictable transfer pricing outcomes, it should replace rigidity with flexibility — allowing the tax Commissioner discretion to admit later filings from compliant taxpayers and scaling fees based on turnover or transaction materiality.
The Minimum Top-Up Tax (MTT) Regulations implement Section 12G of the Income Tax Act, operationalising the OECD’s rules. Under this framework, multinational groups with global consolidated turnover of 750 million euros (Sh105 billion) face a 15 percent minimum effective tax rate across jurisdictions.
In principle, the MTT seeks to ensure fairness: profits shouldn’t escape taxation simply because they arise in lower-tax jurisdictions. But in practice, this rule will not apply to many groups following global CbCR (Country-by-Country Reporting) deregistrations.
For instance, the Swiss tax authority has confirmed that certain groups whose consolidated revenue has fallen below CHF 900 million (750 million euros) are no longer considered multimational enterprises (MNEs) under OECD GloBE rules, and thus out of scope of the MTT regime.
In short, while the MTT framework may be relevant for larger multinationals operating in Kenya, it will not affect smaller groups whose revenue falls below the threshold. Nevertheless, taxpayers should maintain effective tax rate documentation and monitor future revenue thresholds in case of re-entry into MNE status.
Kenya deserves credit for taking proactive steps to modernise its tax law.
Both the APA and MTT frameworks move the country closer to international standards, providing clarity where ambiguity has long bred dispute. But for these reforms to truly succeed, they must be fit for Kenya’s economic reality — one where compliance costs already weigh heavily, and investment decisions hinge on predictability.
Regulation must be firm, but not forbidding. A shorter APA pre-filing window and more practical fee structure would foster participation.
Similarly, Kenya should avoid rushing into complex GloBE reporting requirements for taxpayers who are clearly out of scope. KRA’s stakeholder engagement process presents an opportunity not just to refine these drafts, but to redefine Kenya’s approach to investor relations.
By engaging industry voices early, Kenya can build a system that upholds integrity without stifling enterprise. Tax certainty should be a competitive advantage, not an administrative luxury.
